Written by Stephanie Glanville
Stephanie Glanville is the Marketing Manager of TaxBandits. She has several years of experience with IRS tax forms and the funtionality of TaxBandits. With a passion to help business owners better understand their IRS tax forms and filing, she aims to create content that is valuable and informative.
As a business, you must manage various tax forms throughout the year to meet your tax filing obligations. Form 1099-NEC is particularly important if your business uses non-employee services.
In this article, we will cover the basics of Form 1099-NEC, its filing requirements, deadlines, and more.
Table of Content:
Form 1099-NEC vs Form 1099-MISC - What’s the Difference?
Who is responsible for filing Form 1099-NEC?
What are the latest updates to Form 1099-NEC?
What information is needed to complete Form 1099-NEC?
What’s the filing procedure for Form 1099-NEC?
What are the different copies of Form 1099-NEC?
What are the penalties for not filing Form 1099-NEC?
What’s the process for requesting an extension to file or furnish 1099-NEC?
Key Takeaways About Form 1099-NEC
- Form 1099-NEC is used to report nonemployee compensation of $600 or more paid during the tax year.
- Businesses that pay $600 or more in nonemployee compensation during the tax year must file 1099-NEC forms and distribute copies to recipients.
- January 31st is the deadline to file 1099-NEC with the IRS and distribute copies to recipients.
- Businesses filing 10 or more tax returns must file 1099-NEC forms electronically.
What is Form 1099 NEC?
Form 1099-NEC is an IRS information return used by businesses to report compensation paid to non-employees during the tax year. You must file Form 1099-NEC if your business has paid $600 or more in non-employee
compensation annually.
'Non-employee' refers to individuals or entities not directly employed by your business but who provide services indirectly. This includes freelancers, independent contractors, self-employed individuals, consultants, vendors, and more.
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Form 1099-NEC vs Form 1099-MISC - What’s the Difference?
Until the 2019 tax year, nonemployee compensation was reported in Box 7 of Form 1099-MISC. Starting in 2020, the IRS requires using Form 1099-NEC for this purpose. It’s important to note that Form 1099-NEC is not a substitute for Form 1099-MISC but a separate form specifically for reporting nonemployee compensation.
Learn more about 1099-NEC vs 1099-MISC
Who is Responsible for Filing Form 1099-NEC?
According to the IRS guidelines, you must file a 1099-NEC under any of the following conditions.
- If you have paid $600 or more in the course of your trade or business as
- Compensation to non-employees which can be an individual, partnership, estate, or, in some cases, a corporation.
- Payment to an attorney
- Directors’ fees
- Payments made on behalf of another person/entity
- If you’ve withheld any federal income tax from any person under the backup withholding rules (regardless of the total amount you paid).
- Wages, any bonuses, prizes, and awards paid to employees (Must use Form W-2)
Note: You can use Form 1099-NEC or 1099-MISC to report the sales of consumer products to any individual on a buy-sell, a deposit-commission, or other commission-basis for resale, totaling $5000 or more.
Exceptions: The following taxable payments do not need to be reported on this form.
- Payments to corporations, including Limited Liability Companies (LLC) treated as C or S corporations
- Payments for merchandise, telegrams, telephone, freight, storage, and similar items
- Rental payments made to real estate agents or property managers
- Wages, any bonuses, prizes, and awards paid to employees (Must use Form W-2)
- Military differential wage payments (Must use Form W-2)
- Business travel allowances paid to employees (Can use Form W-2)
- Cost of current life insurance protection (Must use Form W-2 or 1099-R)
- Payments to a tax-exempt organization
- Payments made to homeowners (Must use Form 1098-MA)
- Compensation for injuries or sickness by the Department of Justice or under a state program
- Compensation for wrongful incarceration.
- Fees paid to informers as an award/reward for information about any criminal activities.
- Scholarships
- Difficulty-of-care payments
- Canceled debts
- Employee business expense reimbursements
What are the Latest Updates to Form 1099-NEC?
While the IRS hasn’t made significant changes to Form 1099-NEC recently, there are some updates you need to be aware of to ensure compliance.
- Revised E-file Requirement: Starting in 2024, the IRS lowered the threshold for e-filing information returns, including 1099 forms. E-filing is now required when submitting 10 or more of any information return during the year. Previously, this threshold was 250 forms per type.
- Increased Penalties for Incorrect Form 1099-NEC Filing: The IRS has also increased the penalty amounts for Form 1099-NEC for 2024.
What information is needed to complete Form 1099-NEC?
In order to complete Form 1099-NEC, you’ll need the following information available.
- Payer Details - Name, address, telephone number, and Taxpayer Identification Number (TIN).
- Recipient Details - Name, mailing address, and Taxpayer Identification Number(TIN).
- Payment Details - The total amount of nonemployee compensation paid during the tax year.
- Tax Withheld - The amount of federal income tax withheld under the backup withholding rules.
- State-specific information - State/Payer’s state number, state income, and state income tax withheld, if any.
Check out our Form 1099-NEC instructions for more information on this.
What’s the Filing Procedure for Form 1099-NEC?
Generally, the Form 1099-NEC filing process will involve the following steps.
-
Collect Recipient Information using Form W-9
By requesting Form W-9 from the recipient, you can obtain their Taxpayer Identification Number (TIN), legal name, address, federal tax classification, and any applicable FATCA Reporting or Backup withholding exemptions.
-
Identify Reportable Payments
Identify all payments made during the tax year that must be reported on Form 1099-NEC. This may include payments to independent contractors, freelancers, and vendors.
-
Complete Form 1099-NEC
Fill out a 1099-NEC form for each of the applicable recipients. Make sure the information you provide is accurate to avoid any rejections.
-
File with the IRS and State
After completing the 1099-NEC, file it with the IRS and any required state agencies. Remember to e-file if you are submitting 10 or more returns.
-
Distribute Recipient Copies
The IRS requires you to furnish copies of 1099-NEC forms to the recipients.
What should recipients do after receiving a Form 1099-NEC?
Any recipients, whether individuals or entities, who receive a copy of the 1099-NEC filed for them must report that income on their personal or business income tax returns.
If recipients haven’t received their copy before the filing deadline, they should contact their payer. Recipients must report all their income even if their payer fails to furnish a copy of the 1099-NEC
form filed for them. -
File Corrections (If Needed)
If you need to correct information on your recipient's 1099-NEC form, you can file 1099 NEC corrections for recipient information or amounts. To correct payer details, you must send a letter to the IRS.
What are the different copies of Form 1099-NEC?
Form 1099-NEC has 4 different copies, each serving a certain purpose. Understanding the purpose of each copy is essential to ensure compliance with IRS requirements.
| Payer Copies |
Copy A - Filed with the IRS Copy 1 - Filed with the State agency (if required) |
|---|---|
| Recipient Copies |
Copy B - Furnished to the recipients Copy 2 - Given to recipients to file with their state income tax return (if required). |
When is Form 1099-NEC Due?
Form 1099-NEC must be filed with the IRS by January 31 of the following year, either on paper or electronically. Copies must also be distributed to the recipients by this date. If January 31 falls on a weekend or holiday, you should file on the next business day.
State filing requirements for Form 1099-NEC vary, always be sure to check your specific state deadlines.
Learn more about state filing requirements Click here.
Here’s an overview of Form 1099-NEC deadlines for the 2024 tax year:
| Electronic Filing | Recipient Copy | Paper filing |
|---|---|---|
|
January 31, 2025 |
January 31, 2025 |
January 31, 2025 |
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What are the Penalties for Not Filing Form 1099-NEC?
If you fail to file and furnish Form 1099-NEC within the specified deadlines, the IRS will impose penalties ranging between $60 and $660, depending on your business' size and the delayed period.
| Delay Period | Penalty | Maximum Penalty | |
|---|---|---|---|
|
For small business Gross receipts ≤ $5M |
For large business Gross receipts ≥ $5M |
||
|
Filed within 30 days after the deadline |
$60/form |
$232,500 |
$664,500 |
|
Filed after 30 days but before August 1 |
$130/form |
$664,500 |
$1,993,500 |
|
Filed after August 1 (or) Not filed at all |
$330/form |
$1,329,000 |
$3,987,000 |
|
Intentional Disregard |
$660/form |
No maximum limit |
|
The key to avoiding IRS penalties is filing on time with accurate information. Learn more about 1099 NEC Penalties.
What’s the process for requesting an extension to file or furnish 1099-NEC?
Unlike many other information returns, extensions for filing or furnishing Forms 1099-NEC are not automatic. To request an extension, you must meet specific conditions and file one of the following:
- Form 8809 - If accepted, this form grants an extension of 30 days to file 1099-NEC forms with the IRS.
- Form 15397 - If accepted, this form grants an extension of 30 days to furnish recipients with 1099-NEC copies.
Specific Criteria for Requesting an Extension for Form 1099-NEC
The IRS will grant an extension for filing and furnishing 1099-NECs under dire circumstances, including:
- A catastrophic event in a federally declared disaster area, which made it impossible to resume operations or access necessary records.
- Impacts of a fire, casualty, or natural disaster
- Inability to file due to serious illness, death, or other unavoidable absences of the person responsible for filing.
Simplify Your Form 1099-NEC E-filing with TaxBandits!
TaxBandits, an authorized e-file provider, offers a secure solution for tax professionals and businesses of all sizes to e-file 1099-NEC. Our user-friendly software simplifies the process, allowing you to maintain compliance in just a few steps:
- Step 1 : Create your free account and select Form 1099-NEC
- Step 2 : Enter the required 1099-NEC information.
- Step 3 : Pay the filing fee and transmit the 1099-NEC(s) to the IRS & State.
- Step 3 : Opt-in to Postal Mailing or Online Access for recipient copies.
About the Author
Stephanie Glanville is the Marketing Manager of TaxBandits. She has several years of experience with IRS tax forms and the funtionality of TaxBandits. With a passion to help business owners better understand their IRS tax forms and filing, she aims to create content that is valuable and informative.
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